Global Trusts Weather the Dividend Crisis

Investment trusts maintained their 10-year dividend growth record last year, but 2021 is still likely to be challenging for income

James Gard 29 March, 2021 | 1:05PM
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Investment trusts fared much better during the dividend drought than UK stocks and funds, according to the latest report Link Dividend Monitor. While payouts from UK companies dropped 44% in 2020 to £61.9 billion, the lowest level since 2011, investment trusts increased their dividends by 4.2% to £1.88 billion, maintaining a 10-year track record of growth. Still, there were large regional variations, with Europe-focused trusts more affected by dividend cuts than global and Asia-focused trusts. Link expects this regional disparity to continue in 2021, with global equity income funds likely to prove more resilient. 

The story of 2020’s dividend crisis, which accelerated in the early part of the year but faded as economic conditions stabilised, will be painfully familiar to income investors. “Cuts this deep and this broad have never been seen before in the UK, but neither has a recession this big. Outside the UK, the picture was far better, though it was still a difficult year,” says Link. As Morningstar’s index strategist, Dan Lefkovitz explains, no one was spared the Great Dividend Disaster, although US and Canada investors fared better, especially those who avoided energy and property sectors. Link says that US banks were not subject to the same restrictions on dividends as their UK and European counterparts, and US companies in general chose to preserve cash by reducing buybacks rather than cutting dividends.

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James Gard  is content editor for Morningstar.co.uk

 

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